Embraer books 'milestone' SkyWest deal worth up to $8.3 billion

SAO PAULO – SkyWest Inc , the world's largest regional airline group, agreed to buy at least 40 new jets from Brazilian planemaker Embraer SA
, in a deal that could climb to 200 aircraft and a total price tag of more than $8 billion.

"This is truly a milestone order for Embraer," Paulo Cesar de Souza e Silva, the head of Embraer's commercial aviation unit, said in a Tuesday announcement calling the deal one of the biggest ever for both companies.

The first 40 E175s, which SkyWest will fly for United Airlines , enter directly into Embraer's order backlog, while orders for another 60 planes depend on the operator's upcoming contracts with major airlines. SkyWest also has options for an additional 100 aircraft, bringing the potential value of the contract to $8.3 billion at list prices.

With that, Embraer has all but guaranteed the rebound of its commercial aircraft division, which had slumped to about half of revenue as the company trimmed production on weak order flow.

Embraer shares jumped as much as much as 4.8 percent in early Sao Paulo trading to their highest in over five years.

The order also secures Embraer's lead over its chief rival, Canada's Bombardier Inc
, in the race for new orders from major U.S. airlines, who are snapping up planes with up to 76 seats due to labor contracts renegotiated last year.

"This announcement further entrenches Embraer's lead with regards to the current regional jet campaign with major North American carriers," analyst Walter Spracklin of RBC Dominion Securities wrote in a note.

Embraer already booked an order directly with United Continental Holdings Inc last month for as many as 70 new regional jets. That guaranteed stable production in the coming year, executives said, and boosted the chances that output would rise as much as 15 percent next year to around 2012 levels.

Combined with an order for the American Airlines network, Embraer has booked 117 firm orders and 247 options and conditional orders with U.S. carriers this year.

Bombardier's last major contract with a U.S. airline was a December deal with Delta Air Lines for 40 firm orders and 30 options. Canadian carrier Porter Airlines has also placed a conditional order for 12 of Bombardier's CSeries jets, including options for another 18, pending the expansion of its Toronto Island airport base.

Embraer's deliveries on the SkyWest contract are set to begin in the second half of 2014.